Analysis Of Adam Smith's The Wealth Of Nations

The book The Wealth of Nations was written by Adam Smith during 1768-1776, and it was published in 1776. In fact, the objective of the theories in this book is to help societies to achieve “universal opulence”, which means to maximize the average living standard of all the people in societies (Wong, 2018a). In addition, this goal could also relate to the problem of inequality. Nevertheless, in the contemporary economics, those theories might not be able to improve people’s average living standard because Adam Smith might not be able to foresee the future conditions of economics and overlook some factors. Hence, this essay argues that those theories might not be able to improve inequality and average living standard effectively in the present,

According to Cambridge Dictionary, the meaning of division of labor is “a way of organizing work, especially making things, so that particular types of work are done by particular people” (Cambridge University Press, n.d.). Smith proposes that, this could enhance a society’s productivity because in the long term, workers could be more skilful and save time on completing a specialized task, so more output could be produced (Wong, 2018a). That says, more output will promote a state’s economic growth, as well as the general living standard of that nation. However, this might only improve the problem of production or growth, but not the problem of income distribution. As J.S. Mill observes that, division of labor is necessary for production, but wage differentials or rewards are crucial to motivate workers to produce (Wong, 2018b). That means although division of labor is carried out, wage gap still exists, so income inequality still exists under division of labor. In fact, this argument also holds true in the today’s world. Nowadays, workers specialize in a job, or producing a particular good,

To begin with, the concept of inequality of opportunities is about “equality of access or of life chances” (Mount, 2008, p.3). That means whether all people could obtain or get access to the goods or services in the free and competitive market equally. On the other hand, the meaning of the “invisible hand” could be illustrated through Smith’s argument on how can “invisible hand” improve the wealth of a nation. Smith argues that, in the competitive free market, people who are self-interested would create positive social effects, such as a decrease in the market price and an improvement in the productivity (Wong, 2018a). This is the logic behind the idea of “invisible hand”. In other words, the “invisible hand” could increase output and reduce the prices simultaneously, so the general living standard of a nation as a whole could be improved. Notwithstanding the above, it is not a necessary condition that all people inside the society have a higher living standard, which would lead to inequality of opportunities. Mill discovered that this kind of market economy could not eradicate the problem of distribution, such as the heredity of wealth (Wong, 2018b). In other words, if the family is originally affluent, the descendants are likely to